At the end of every year I like to reflect and assess what the key highlights were, and 2020 has definitely been one to reminisce upon. COVID-19, community spread, confirmed positive cases, contact tracing, epidemic, pandemic, curve flattening, herd immunity, lockdown, quarantine, social distancing, home schooling and working from home are all terminologies we are familiar with and use in our day-to-day talk nowadays.
Moreover, most of these have become key aspects in our daily monitoring as we try to forecast how they are going to affect the markets, without any framework, theories or research to guide us.
During this year, a total value of €58.6 million changed hands in the local equity market, which is 34.3 per cent less than the value during 2019. This level of trading was approximately last seen during 2013 and 2014, and is also less than the 10-year average.
The most actively traded shares in terms of value were Malta International Airport plc, RS2 Software plc and Bank of Valletta plc, whereas in terms of volume, Bank of Valletta plc, HSBC Bank Malta plc and BMIT Technologies plc were the front runners.
In general, the Malta Stock Exchange (MSE) Total Return Index has plummeted by 11.90 per cent. During the year there were 17 equities that traded south, seven equities traded in positive territory and one remained unchanged. The biggest losers were Simonds Farsons Cisk plc, Medserv plc and HSBC Bank Malta plc, while the top equities were Grand Harbour Marina plc and Mapfre Middlesea plc, albeit on low trading volumes. PG plc was also among the winners for 2020, with a value of €4.8 million changing hands.
Evidently, during this year the non-cyclical equities on the MSE have outperformed the cyclical equities, a trend that began from the start of 2020 and persisted throughout the year, even though the underperformance narrowed during the last two months of the year.
The MSE has underperformed most of the major indices around the world. The performance of major indices was mainly driven by technology stocks, especially in the US. Hence, part of the underperformance can be explained by the lack of listed technology stocks on the local stock market.
In the local corporate bond segment, a value of more than €102 million was traded, which represents 6.7 per cent more than 2019. In general, the local corporate bond market for 2020 traded marginally on the positive side. During the first six months of the year the local fixed income market traded in the red, while recouping most of the losses during the second period, particularly in last quarter of the year.
“The MSE has underperformed most of the major indices around the world”
The top performers in the corporate bond spectrum were the 4% Cablenet Communication Systems plc unsecured 2030, the 4.25% Mercury Projects Finance plc secured 2031 and the 5.3% Mariner Finance plc unsecured 2024. On the other hand, the three bonds that suffered the biggest loss in value were the 4.5% Izola Bank plc unsecured 2025, the 6% AX Investments plc 2024 and the 4.85% Melite Finance plc secured 2028.
The resilience of the corporate bond market can also be attributed to the necessary action taken by the government of Malta to address the most impacted businesses together with the backing of the Malta Development Bank. During the pandemic year, seven new bonds were listed on the local stock exchange, with three of them being new companies listing for the first time, namely APS Bank plc, Shoreline Mall plc and Cablenet Communication Systems plc.
Various supportive measures by the government of Malta were implemented to shore up economic activity, including government guarantees for banks to lend, moratoria and fiscal incentives to citizens and selected economic sectors. During this year, the net Malta Government Stocks issued by the Maltese Treasury amounted to around €815 million to finance these mitigation measures, which is more than initially projected at the start of the year. This has pushed up government debt to about 56 per cent of GDP, up from 42.6 per cent in 2019.
In terms of activity in this asset class, MGSs traded nearly half of what was traded during 2019. The yield curve for the MGSs has shifted down when compared with the end of December 2019, but steeper as well. This means that today, investors are being less compensated for the same maturities across the board, with the exception on the longest end of the curve where investors are getting more or less the same coupon as at the end of 2019.
Now that the year that everyone eagerly wanted to be over has passed, we welcome 2021 with more optimism, however with cautiousness as well. Although things are much brighter than they were during the end of the last quarter of 2020, and there is light at the end of the tunnel, one has to be prudent even when investing. It is important that one considers investing in mutual funds; one of the key concepts in the management of mutual funds is to ensure industry-wide diversification without excessive overexposures compared to the underlying market. This will protect investors in market turbulence.
The writer and the company have obtained the information contained in this article from sources they believe to be reliable but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this article. They have no obligation to update, modify or amend this article or to otherwise notify readers thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate.
Clayton Scicluna, Portofolio Manager, BOV Asset Management Ltd